Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries
AbstractProductivity risk is pervasive in underdeveloped countries. This paper highlights a way in which underdevelopment exacerbates productivity risk. Productivity shocks cause larger changes in the wage when workers are poorer, less able to migrate, and more credit-constrained because of such workers' inelastic labor supply. This equilibrium wage effect hurts workers. In contrast, it acts as insurance for landowners. Agricultural wage data for 257 districts in India for 1956â87 are used to test the predictions, with rainfall as an instrument for agricultural productivity. In districts with fewer banks or higher migration costs, the wage is much more responsive to fluctuations in productivity.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series UCLA Economics Online Papers with number 370.
Date of creation: 01 Dec 2005
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Other versions of this item:
- Seema Jayachandran, 2006. "Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 538-575, June.
- NEP-ALL-2006-02-19 (All new papers)
- NEP-DEV-2006-02-19 (Development)
- NEP-EFF-2006-02-19 (Efficiency & Productivity)
- NEP-LAB-2006-02-19 (Labour Economics)
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